The Department of Justice’s Antitrust Division is suing to block the proposed merger of cinema advertising networks National CineMedia and Screenvision.

Bill Baer, assistant attorney general for the Antitrust Division, said that if the $375 million deal is allowed to proceed, “the benefits of competition will be lost, depriving theaters and advertisers of options for cinema advertising network services and risking higher prices for moviegoers.”

In their lawsuit filed in U.S. District Court in New York, the Justice Department said that NCM and Screenvision would serve 88% of movie screens in the U.S. with long-term exclusive contracts.

In the complaint, the Justice Department cited aggressive competition between the two companies and statements made by its executives on the need to end it via a merger.

According to the DOJ, NCM told its board that it could either acquire Screenvision, giving it the ability to “control selling tactics” including pricing, or it could compete with more aggressive pricing and adding theaters to its network. Per the DOJ, NCM saw Screenvision’s “new strategy of undercutting [NCM’s] pricing by 50% (or more) [as] a direct threat to [NCM’s] business model” and “a very unusual strategy in a duopoly.”

The three largest movie circuits in the country, Regal Entertainment Group, AMC Entertainment and Cinemark Holdings, are majority owners of NCM.

Kurt Hall, chairman and CEO of NCM, said in a statement, “I am obviously very disappointed that the DOJ did not see the benefits of the new combined company to our advertising clients and their agencies and our exhibitor partners.

“We look forward to demonstrating those benefits. Combining NCM and Screenvision will enable us to offer advertisers a better product with the broader reach, ubiquitous geographic coverage, more advertising impressions, enhanced targeting capability, and lower costs that advertising clients and their agencies seek. With a better product we will generate more advertising revenue for our theatre circuit partners. Advertisers, exhibitors and shareholders all will benefit from this combination which will better enable NCM 2.0 to compete in the increasingly competitive video advertising marketplace.”

The complaint alleges that Regal, AMC and Cinemark exercise “significant control and influence” over NCM’s actions.The DOJ contends that the chains can block NCM from entering into contracts with independent movie theaters that contain upfront payments exceeding $1 million, an important area of competition between NCM and Screenvision.

In light of the DOJ’s action, NCM moved up a planned Tuesday earnings call to Monday. Hall told analysts that “clearly some of the claims the DOJ has made can be proven incorrect or misguided.” He estimated that the case would take “four months or possibly more.” He said that in their discussions with the DOJ, “we didn’t talk about any concessions at all. We weren’t asked to make any and we didn’t offer any.”

“It was a bit of a surprise that it came out this way,” he told analysts.

He also made the point that the groups they consider competitors, like TV broadcasters, have ubiquitous national reach and that they alone don’t have a large enough base of attendance to target anywhere near the number of demographic segments that other platforms have. But the merger would help give them that reach, he said.

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